Despite the ongoing trend toward lighter packaging for consumer goods and the ongoing decline in newspaper and magazine circulation and bulk mail, a number of the material recovery facilities (MRFs) on this version of Recycling Today’s list of the largest MRFs in North America increased the tonnage of recyclables they recovered and shipped in 2016. The majority of MRFs, however, did see volume decline relative to the last edition of the list, which was which was published in September 2015.

The rankings on this year’s list are based on the total tonnage of recyclables shipped in 2016 as reported by the facilities. Estimates were necessary in some cases because we had not received replies to our request for this information as of press time. Additionally, the figure for FCC Environmental’s Dallas MRF is an estimate of the total volume it will process in 2017.

At No. 1 on this year’s edition of the list, Sims Municipal Recycling’s Sunset Park MRF in Brooklyn, New York, reported the most notable growth compared with the previous version of our list. The company increased its tons shipped from 140,000 in 2014 to 241,884 in 2016.

In addition to Sims’ Sunset Park, three other MRFs among North America’s 15 largest saw the tons of recyclables they shipped in 2016 grow. These include Casella Waste Systems’ Charlestown, Massachusetts, MRF, which shipped 204,580 tons in 2016 compared with 184,939 tons in 2014; Rumpke Recycling’s Cincinnati MRF, which shipped 171,520 tons in 2016 compared with 166,996 tons in 2014; and Waste Management’s (WM’s) Tacoma, Washington, MRF, which shipped 165,489 tons of recyclables in 2016 compared with 157,478 tons in 2014.

Speaking of WM, 26 of the company’s 95 MRFs (as of the end of 2016) appear on this edition of the list. Other MRF operators with multiple facilities on the list include Charlotte, North Carolina-based ReCommunity, with six; Phoenix-based Republic Services, with six; and The Woodlands, Texas-based Waste Connections, with four.

The Republic Services name likely will make additional appearances on future versions of this list. At press time, the company announced that it had entered into a definitive agreement to acquire ReCommunity Holdings II Inc. Republic says ReCommunity’s assets and expertise will complement its existing recycling collection and processing operations.

The purchase involves 26 recycling centers in 14 states. Combined, these facilities recover approximately 1.6 million tons of recyclables annually.

The transaction also includes the assumption of multiple long-term municipal agreements with processing-fee-based structures, which aligns with Republic’s recycling pricing model.

As noted earlier, however, most of North America’s 75 largest MRFs saw the tons of recyclables they shipped in 2016 decline compared with two years earlier in part because of the use of lighter-weight packaging, such as pouches and pods that have replaced rigid plastic packaging for laundry detergent, and the evolving composition of the residential recycling stream.

The changing nature of the incoming residential recycling stream presents an ongoing challenge to MRF operators and their suppliers, though it appears some of the largest MRFs in North America have managed to buck the trend and increase their tonnages.

The author is managing editor of Recycling Today and can be contacted via email at dtoto@gie.net.

Features - Recycling Health Care Plastics

Worldwide, only 14 percent of plastic is collected for recycling, according to the Ellen MacArthur Foundation publication “The New Plastics Economy: Catalysing Action,” available at http://bit.ly/2uCRxec. In the health care segment, the rate is even lower. The lack of universal standards and a complex value chain have diminished the perception of health care plastics as a viable recycling feedstock. However, for entrepreneurial and innovative recyclers, the health care industry represents one of the last untapped sources of high-quality recyclable plastics.

Sterilization wrap, gowns, irrigation bottles, IV bags, basins, pitchers, trays and rigid and flexible packaging materials are, for the most part, used once and thrown away. According to data as reported in a 2010 article published by Slate, available at http://slate.me/2vURBWL, U.S. hospitals generate 6 million tons of waste per year, with plastics accounting for up to one-quarter of that total. Most of that plastic ends up in landfills or incinerators despite that 85 percent is nonhazardous and free from patient contact and contamination.

Understanding the opportunity

Given the large amount of waste they generate, hospitals have a vested interest in recycling. Recycling helps hospitals reduce waste management costs and, in some cases, even can be a source of revenue. They also see recycling programs as enhancing employee engagement, greening the supply chain and reducing their carbon footprints as part of their overall sustainability goals. By their very nature, hospitals are committed to improving population health in the communities they serve and seek to minimize their environmental impacts by diverting plastic from landfill and incinerators. Hospitals with religious affiliations may see taking care of the earth as part of their core mission.

Recyclers also stand to reap multiple benefits from recycling health care plastics. In most markets around the country, few (if any) recyclers are working to extract these rich, untapped materials from clinical settings. Because disposal of these materials represents a significant cost to hospitals, a solution that reduces that cost while offering an environmentally responsible alternative to landfill or incineration represents a very desirable alternative to current practices, and hospitals are clamoring for recyclers to partner with.

Health care plastics often are made of high-quality materials, a requirement for use in medical applications, and are designed for extremely specific uses. This results in very little variance in key characteristics, such as melt flow, viscosity and tensile strength, therefore enhancing the properties and value of resins and products manufactured from them. These plastics are generated continuously with very little change in composition over time, meaning they are a reliable, high-quality stream coming from willing and eager providers. The result? A golden opportunity for recyclers with the insight to see the possibilities.

Connecting supply and demand not only helps create a closed-loop system (make, use, return) that achieves better environmental outcomes, but it also makes good business sense.

Busting the myths around health care plastics

To help recyclers embrace the possibilities that plastics from health care settings hold, we examine three popular myths that surround this material.

Common health care plastics

A brief overview of some of the most common health care plastics follows:

Sterilization wrap – Commonly referred to as “blue wrap,” sterilization wrap is a material that protects and contains surgical instruments through the sterilization (autoclave) process and prevents the instruments from becoming contaminated prior to use. It often is removed from the instruments during procedure room setup and may be collected before the patient even enters the room, thereby ensuring a supply of material that is free of contaminants. It is made from polypropylene (PP) and often is recycled with other No. 5 materials. Notably, resins derived from sterilization wrap have a high melt flow. Plastic compounders that are familiar with the material use it to elevate the melt flow of their compounds, thereby enhancing the value of the resin products they produce.

Irrigation bottles – Irrigation bottles for saline solutions and sterile water also are commonly used in operating rooms. These bottles are easy to drain and collect for recycling. They are most often made from PP, which can be recycled with other No. 5 materials. Some saline bottles are made from polyethylene terephthalate (PET or PETE), which may be recycled with other No. 1 materials, or high-density polyethylene (HDPE), which may be recycled with other No. 2 materials.

Basins, pitchers, trays – Rigid colored and opaque plastic containers, such as water pitchers and patient care basins and trays, typically are made from PP and may be recycled with other No. 5 materials.

Tyvek – Tyvek is a common material used in sterile barrier packaging, typically as part of a chevron peel pouch or a lid on a rigid tray. Tyvek is made from HDPE and may be recycled with other No. 2 materials, depending on the recycling process. It can be difficult to visually differentiate Tyvek from paper. Both have a similar appearance; however, long intertwined fibers can be seen in Tyvek material when a light source is placed behind the material. Also, paper tears easily, while Tyvek is difficult to tear.

Flexible clear film packaging – Clear film packaging includes shrink wrap, stretch film, thermoform film packaging and plastic bags and usually is found as secondary and tertiary packaging for health care products. Some clear film packaging is made from polyethylene (PE) and may be recycled with No. 2 materials. Multilayer laminates, often including layers of nylon and other materials, comprise other film packaging that is a challenge for most recyclers to manage because component layers are inseparable.

Myth No. 1: the ick factor. A common misconception about health care plastics is that all of it is inherently dangerous as a result of contact with biohazardous materials, medications and other unsafe materials. In reality, this stream is cleaner than municipal material—after their single uses, most health care plastics are disposed of before the patient even enters the room.

Years ago, postconsumer plastics faced the same myth. Yet, today, these materials are recycled without another thought. By using proper collection procedures, it’s possible to greatly reduce and even eliminate the potential for contamination. Most hospitals are committed to training staff on proper sorting and segregation and are open to feedback from and dialogue with recyclers to recycle health care plastics.

“A strong partnership and open communication between hospitals and recyclers are key,” says Dan Constant, president of Sustainable Solutions LLC, Gainesville, Georgia, and a consultant to Halyard Health’s Blue Renew program. “Understanding the importance of training and who is accountable for each step in the process greatly diminishes potential contamination issues,” he says.

Myth No. 2: The quantity isn’t there. While a single hospital may not generate a profitable volume of material for a recycler, many hospitals are part of larger health care systems that are interested in working together to collect sufficient volumes to make recycling economically viable. Recyclers should look to accumulate material across multiple hospitals, whether by health care system or geography, to achieve desired quantities. Studies such as the one conducted at Stanford Healthcare (See www.hprc.org/stanford-pilot-study.) have demonstrated that the quantity is there—it’s the collection that can be the challenge. However, recyclers and other service providers (document destruction, paper recyclers, linen companies and sheltered workforce programs, such as those offered by Goodwill (See http://bit.ly/2kI7wiV for a case study.), already are transporting materials to and from hospitals and have logistics in place to aggregate the volume needed for a health care plastics recycling program to make good business sense. Working with these vendors to set up backhaul systems can be key to scaling a collection program.

“Health care plastics are the last large, untapped material stream with great potential for recyclers, compounders and OEMs,” says Robert Render, commercial manager for Ravago Recycling Group. Ravago Manufacturing’s U.S. headquarters are based in Orlando, Florida. “We have to overcome the challenges particular to concentrating volume, much like we did with postconsumer collections. It can be done.”

Myth No. 3: There is no end market. Health care plastics lend themselves to numerous markets. High-quality polypropylene (PP) always is in demand with compounders given its relatively high value and universal applications for blending and pelletizing. PP sterilization wrap increasingly is made into many finished products, including some that are sold back into hospitals.

“Through Halyard Health’s Blue Renew program, we have created BlueCON Resin, a recycled polypropylene made of 80 percent operating room waste,” says Constant. “With this new resin, we make environmentally preferred products that hospitals use every day, including garbage cans, bedpans and washbasins. It is innovative solutions like this that will go a long way in creating demand for health care plastics.”

Rigid plastics from the health care sector, such as pitchers, trays and packaging materials, can be processed with other postindustrial material.

This workshop will help recyclers better understand material types, quality controls and collection logistics and navigate the process of working with hospitals to capitalize on the clean plastics available for recovery. Workshop registration is free and available at http://bit.ly/2vCcCCR.

Rethinking the vulnerabilities of data wiping

Features - Secure Destruction

I have been professionally focused on hard drive sanitization for 11 years. Throughout that time, the most common theme I have observed, especially in the electronics reuse community, has been that organizations’ priorities related to data destruction decisions almost always are reactive to new information irrespective of relevance. In other words, decision-makers have a habit of reacting to the newest piece of information—be it a new standard, guideline or even press release or marketing message, and reviewing their data destruction operations with the new information as a top priority, sometimes to the point of losing sight of much more critical considerations. Unfortunately, this practice is extremely ineffective and often unnecessarily expensive.

Let’s start with an example (or a symptom, depending on how you look at it). When discussing a media sanitization process with someone in the industry, whether a client, partner or otherwise, what kinds of questions do we most often ask?

“What software do you use?”

“How many passes do you do?”

These questions are about a mechanism involved in the data wiping process: the software. They are all about one of the tools used in the process of wiping drives.

I’ve never heard someone ask, “How often do your technicians go through retraining on sensitive data handling practices?” Or, “What procedures do you use to separate unwiped, passed and failed devices?”

If I told you that this latter set of questions points to areas of a data wiping operation that are more than 10 times as likely to cause a breach-level failure than the former set of questions does, would you believe it?

Maybe not.

Let’s look at it a different way. If you were hiring a contractor to build an addition on your house, you’d ask for insurance information, check BBB ratings, ask for some examples of recently completed projects and maybe some customer testimonials.

What you wouldn’t do is ask, “What brand of framing hammers do you use?” or, “What kind of tires do you have on your utility vans?”

However, this is exactly how misdirected our priorities can be when it comes to data destruction.

To focus on one of the tools used to perform one of the tasks associated with the data destruction process is incredibly shortsighted. More than that, it’s misguided. Based on more than a decade of experience solving problems wiping drives, I can say with confidence that the brand of data wiping software or the erasure algorithm being used aren’t near the top of the list of critical elements of an effective overall media sanitization process. How did our priorities become so out of order? The short answer: marketing.

It’s not surprising that the more often something is repeated or the more loudly it is stated, the more relevant that thing appears to be. If you need any evidence of that statement, critically review any recent “scandal,” whether it be sports, politics or any other polarizing field. It’s “more probable than not” that, through unbiased analysis, you’ll see a massive gap between the conveyed magnitude of a particular fact or allegation and its real-world importance.

Back to data destruction, in the U.S. in particular, we only have general guidelines to help us make decisions about how to wipe data from electronic storage media. We don’t have any commercial certifications for data wiping tools (which provide nominal value, anyway), and the only process certifications for data wiping, in my experience, tend to permit some dangerous behavior (unsupported or out-of-date data wiping tools, nondescript device handling practices, marginal personnel training, etc.). We’re left with little dependable guidance as to what really matters when it comes to the process of wiping drives. Data wiping software companies are, of course, obliged to answer the call for guidance.

“What’d I miss?”

I’ve seen data get out many times. We call it a breach-level failure. I’ve seen unsanitized drives shipped to customers, despite having been “successfully wiped.” I’ve analyzed how and why it happened and helped organizations take corrective action and eliminate the original vulnerabilities that led to the process failures. The causes for the various failures have varied somewhat, though they all share one commonality. We’ll get to that later; but first, the causes.

Software. We’re generally conditioned to believe that if a reputable data wiping software reports a successful or “passed” wipe, then the drive has indeed been wiped successfully using the specified erasure algorithm. No original user data should remain on the drive. From repeated personal experience (especially since the Validator was introduced), I’ve witnessed multiple versions of multiple brands of professional, popular data wiping software tools report successful wipes in the field and found the drives to not only contain logical user data but in some cases to not have been wiped whatsoever. In one instance, the same software vulnerability existed for nearly two years without a recall, bug fix or even a technical bulletin or guidance document from the developer.

In no other industry will you find a critical process executed with the kind of blind faith that data destruction professionals place in the erasure results reported by data wiping tools. Perhaps most interesting is that even while we impugn the security reliability of multibillion dollar software and OS (operating system) providers with massive regression and vulnerability testing budgets, we take as gospel the testimony of a data wiping software that might have been developed by, at most, a handful of engineers in a lab environment that may not even have access to the type of storage we’re wiping. To use a phrase President Reagan famously borrowed, everything we know about the nature of software development tells us we should take a “trust but verify” approach to data wiping.

Media segregation. The majority of cases in which improperly sanitized, failed or entirely unsanitized devices (We often generalize all of these cases as “red” status devices—they’re still likely to contain user data.) have made it through the data wiping process as “wiped” have been a direct result of an individual physically putting unsecured drives in the wrong place. Unloading large quantities of drives from a data wiping appliance or a bank of servers becomes a repetitive task for technicians. It’s not reassuring to consider that, on Thursday, the second-shift technician will put five unwiped drives in the “passed” pile, but most of the time that’s exactly how it happens.

Another cause of failure related to segregating red status devices is a systemic inability to actively track the storage media throughout the wiping process. In other words, how clear is it to everyone in the building when red devices are not yet under lock and key? How much time are these devices allowed to spend in receiving? Which employees may access the red status devices during these times? These are examples of questions that can quickly measure the integrity of a process to determine how vulnerable it is to a media-handling-related failure.

Hardware. The most difficult type of data erasure failure to diagnose is a hardware error. Errors with the drives, enclosures, controllers and the host system can create unpredictable and sometimes inconsistent behavior in the data wiping process. So much so, in fact, that I’ve often coached clients that if the quality control procedure reveals a problem in the data wiping operation that makes no sense, it’s probably hardware-related. As an example, I’ve seen a data wiping system write random, unexpected characters during an otherwise “repeating-sector” wipe because of what we discovered to be a RAM error.

The point is that hardware issues can and do affect the performance of a data wiping operation, and sometimes that impact can be difficult to detect. These errors sometimes can be benign (as in the example above), and, in other cases, they can invite breach-level process failures.

It will happen to you

When I am dealing with another discovered media sanitization process failure, the question I ask most is, “How many times has this occurred prior to discovery in this or any environment?” I often wonder how many people even know to look for a problem like the one we’ve discovered. How many organizations have the tools or processes to detect it?

The next question is, “How many types of process failures have I yet to see? What don’t I know about yet?”

I strongly believe there will never be any reasonable assurance that hardware, software and media segregation procedures will be incapable of repeating, in some form or another, the failures I’ve already seen many times. Furthermore, it stands to reason that each of them will, at some point, exhibit new problems that will need to be solved. Each of these operational elements is a perennial vulnerability in the data erasure process, and any organization that performs data wiping is susceptible to them. However, the fact that there are vulnerabilities associated with the individual elements of a data wiping operation does not mean that the overall process needs to be vulnerable. In fact, recognizing and accounting for these potential weaknesses is, in my opinion, the most important step in building an ironclad data wiping operation.

The bulwark

I mentioned before that, without exception, every breach-level data erasure process failure that I’ve analyzed had one thing in common: It could have been prevented through process, through a systemic, aggressive, realistic set of checks and balances that ensure that the integrity of the entire data erasure operation is not hinged on any single component.

Data destruction professionals must create a process that does not rely on the flawless performance of the personnel or the tools in place. They must create a process that accounts for technician errors, software misreporting and physical security lapses and still functions as needed to prevent such errors from becoming a breach-level failure.

A strong process, of course, requires quality tools and their seamless integration. It requires competent and trained (and retrained) personnel. It requires scrutiny, specificity and scalability in quality control. First and foremost, however, it requires realism on the part of its administrators. Any data destruction professional who believes that, because of the tools they’ve invested in or the manager they’ve hired, their operation is impervious to major security risks has thrown out the linchpin of any strong media sanitization process: vigilance.

Michael Cheslock is vice president of technology and sales at DestructData Inc., Haverhill, Massachusetts. More information is available at www.destructdata.com.

Features - Safety Focus

Prevention of employee injuries should be a primary goal of all employers. One fundamental aspect of employee safety is guarding moving parts on machinery. Injuries related to a lack of machine guarding usually are severe and result in amputations or similar serious injuries. The manufacturing, recycling and food industries all share the need to have appropriate machine guards in place to adequately protect workers.

The Occupational Safety and Health Administration (OSHA) has a standard for machine guarding: 1910.212. This OSHA standard states that moving parts on machinery must be guarded from accidental contact from “over, around or under.”

Common types of guarding

A variety of guarding types are available:

barrier guards – These are the most common types of guards, providing a physical barrier around moving parts to prevent accidental contact.

distance guarding – This is a guarding method that usually uses a barrier to prevent employee access to a general area where moving parts are present.

light curtains – A more sophisticated method of guarding, they electronically shut down the equipment if an employee or other object breaks the plane of protection near the point of operation.

pullback devices or restraining straps – These are typically used for punch press and press brake machines. This type of protection relies heavily on proper setup and use by employees, so it is considered by most to be the least favorable method of protection.

machine function guarding – This type of guarding consists of machine functionality, such as two hand controls, foot treadle operation and other methods that prevent an employee from inserting hands or body parts into danger zones during machine operation.

A machine guarding program

Any company that has equipment requiring guarding should have an effective machine guarding program. This program should consist of a variety of components:

initial assessment – Each piece of equipment should be formally inspected for proper machine guarding and related safeguarding. Any pieces noted to have exposed parts or outdated guarding methods would be upgraded or otherwise safeguarded.

employee training – Employees require specific training about how to identify proper (or improper) machine guarding. Rules related to disabling machine safeguards, reporting unsafe conditions and other similar topics should be covered in this training. Lockout training also is required for those performing lockout procedures and employees working near that equipment.

on-going inspections of guarding – Virtually every manufacturing, recycling or food facility is required by OSHA to have frequent and regular inspections. Machine guarding should be part of that inspection process. Several pieces of equipment that use an emergency stop function as part of the machine safety should be tested at the beginning of each shift.

A common mistake many employers make is assuming that new equipment they purchased for their facilities will have the necessary machine guarding that meets all of OSHA’s requirements. Don’t make this mistake! Proactive employers keep machine guarding as a regular safety focus item and, as a result, have a safer workplace as well as a stronger safety culture.

John Schumacher is a senior vice president and shareholder at Assurance. He is based in Schaumburg, Illinois, and focuses on insurance placement and risk improvement for manufacturing, recycling and environmental engineering businesses. In addition, he’s a certified safety professional and a commercial lines coverage specialist (CLCS). He graduated from Illinois State University with a Bachelor of Science in occupational safety and can be contacted at jschumacher@assuranceagency.com.

Scrap tsunami warning?

Features - Cover Story

Chinese scrap slowly and steadily has started finding its way into the global scrap market. With the ongoing closure of scrap-fed steel mills in China, the volume of ferrous scrap reaching the market will reach a level where there will be huge structural disruption in the global scrap market, both in terms of trade and pricing. Will this disruption last for a short period or will it alter the market dynamics indefinitely?

According to the Brussels-based World Steel Association, the recovery and use of steel industry scrap and byproducts reached a worldwide material efficiency rate of 97.3 percent in 2015.

Global scrap consumption in 2015 stood at 650 million metric tons, while the global seaborne trade of scrap stood at around 84 million metric tons in 2015 (an average of approximately 7 million metric tons per month).

Scrap has become an important component in Chinese steelmaking. Between 2010 and 2015, when China’s crude steel production grew by 26 percent, its scrap consumption for making crude steel grew by almost 34 percent.

Breaking down China’s scrap use

The production of crude steel in China in 2015 stood at 803.8 million metric tons. Six percent of this was made in electric arc furnace (EAF) mills, which comes to around 48.2 million metric tons. The induction furnace route produced around 40 million metric tons of crude steel, while the figure for the BOF (basic oxygen furnace) method stood at 715.6 million metric tons.

The scrap intensity in Chinese EAF furnaces is around 550 to 600 kilograms (1,200 to 1,300 pounds) per metric ton. At this charge level, that translates into 28.9 million metric tons of scrap usage in the EAF sector in China.

Next year’s news?

Indian journalist V.K. Shrivastava is far from the only one proposing that surplus ferrous scrap soon will be on its way from China, as the subject was the topic of discussion at more than one session at the ISRI2017 convention in New Orleans in April.

At that event, retired Midrex Technologies executive Robert Hunter said he was not convinced that a “hyper-tsunami” of ferrous scrap leaving China for the U.S. and other parts of the world was imminent. He said, though, that as China’s ferrous scrap collection rises the global market could “be in pretty deep water for a long time.”

John Harris of Canada-based Aaristic Services Inc. also spoke of the potential “scrap tsunami” at ISRI2017, and he continues to say it will soon have a major impact on the market. Reached in early August, Harris tells Recycling Today, “I have been stating for the last several years that China is definitely a scrap exporter to be reckoned with going forward.”

Among the reasons, Harris says: “China has now reached the 50 percent flat-rolled steel HRC (hot-rolled coil) level, and the scrap generated from the yield loss processing HRC is greater than the [scrap] demand for all of China’s steelmaking requirements. My rough calculations leave more than 100 million metric tons of scrap available for export, even before the closing of induction furnaces.” (China’s government has been closing scrap-fed induction steel mills in 2017.)

Pittsburgh-based consultant Becky Hites of Steel Insights LLC is not convinced of the scrap wave’s size. “China’s steelmakers [are] still supplementing their supply with purchases from the world market,” she says, adding that China imported 2.2 million metric tons of ferrous scrap in 2016. “I believe the government will take actions to keep its scrap in the country, much as the Russians did a few years ago.”

Nathan K. Fruchter of Idoru Recycling Corp., Lawrence, New York, says quality considerations also will come into play. “We’re looking at a first generation of scrap exports from China, which produces for basic oxygen furnaces, so the quality of scrap you are getting is not equal to that produced for electric arc furnaces,” he comments.

– Brian Taylor

In the induction furnace sector, the scrap intensity is around 1,000 to 1,100 kilograms (2,200 to 2,400 pounds) per metric ton of crude steel made. At that level of charging, that means some 40 million metric tons of scrap usage for 40 million metric tons of steel produced via induction furnace.

Iron and steel foundries in China are reported to have consumed about 15 million metric tons of scrap in 2015 to create about 30 million to 35 million metric tons of foundry products.

As per a report from McKinsey, total scrap consumption in China in 2015 stood at 180 million metric tons, which translates into 96 million metric tons of scrap used in China’s sizable BOF sector (at a scrap intensity of 134 kilograms, or 295 pounds, per ton of steel produced).

Million metric tons; Sources: Worldsteel; BMI McKinsey, SteelMint

Argus Steel Feedstocks, in a report dated April 25, 2017, states, “The provinces have been instructed to cut off power and water supplies to scrap-fed mills and demolish induction and electric arc furnaces to ensure operations do not [re]start.”

Sources in China indicate the authorities actually are in the field to dismantle the scrap-fed mills, particularly the induction furnaces and those EAFs that are already idle. The deadline for the closure of such mills was June 30, 2017.

What happens if the Chinese authorities have succeeded in achieving what they have set out to do?

New scenarios

If the Chinese authorities have succeeded in shutting down induction furnaces and some EAFs, we are looking at a reflowing of almost 5.75 million metric tons of scrap per month in the market. This is over and above the 7 million metric tons already available for export from China. If they succeed in demolishing only the induction furnace mills, this still creates about 3.3 million metric tons per month of scrap suddenly becoming available for export.

In either situation, we are staring at a bloodbath on the ferrous scrap price front and severely altered dynamics of the global scrap trade.

This sudden influx will lead to a sharp drop in prices of ferrous scrap totally, altering the trade dynamics. In Asia the scrap trade emanating from the United States, Europe and the Middle East will become unviable owing to the logistics costs involved. A recent manifestation of this has been scrap export to Vietnam from China, wherein the price of scrap sold was $175 FOB (freight on board) China against a price of $270 per ton CNF (cost and freight) Vietnam.

During the week of May 8, 2017, Taiwan was reported to have booked Chinese-origin shredded grade scrap at $240 CFR (cost and freight) Taiwan. (Since China has a 40 percent export duty on scrap, and assuming $5 as freight, the effective FOB price comes in at $167). May 10, it was reported that Japanese Steelmaker Kyushu Works received a small shipment of scrap from China.

Platts has reported that regional scrap importers Tokyo Steel and Taiwan’s Feng Hsin have ordered trial lots of Chinese scrap, while South Korea’s Hyundai Steel is inspecting scrap in China this summer. Chinese material has even been offered into India, with talk that some containerized sales have been completed.

A media report dated May 17 states, “In South Korea, mills were not interested in U.S. deep sea cargoes after the recent emergence of Chinese scrap exports about four weeks ago.” The buyers have started demanding a price lower by $10 to $20 per ton for U.S. deep sea bulk heavy melting steel (HMS).

Though the steelmakers have booked small shipments as of now, speculation is rife that they are evaluating the scrap quality. If the quality is proven and found up to the mark, Asian scrap buyers and traders heading to China for their supplies likely is a foregone conclusion.

Thus, reports are that Chinese scrap availability, despite the 40 percent export duty, already has impacted the Asian scrap market, with Southeast Asian mills starting to hold off from booking scrap from elsewhere.

In 2015 Asian countries imported 26.5 million metric tons of scrap. With almost 40 million metric tons of scrap becoming available in an adjacent nation, existing suppliers will either look at new markets or just simply drop the price and bear the brunt. The chances of the latter are high, leading to reduced margins and resulting in traders exiting the business.

Discerning a timeline

Let’s presume that China replaces its induction furnace and older EAF capacity with newer EAF mills. This will require an additional 66.7 million metric tons of EAF capacity to be set up to consume the 40 million metric tons of scrap unused by induction furnaces.

Assuming a lead time of 18 to 24 months to set up an EAF unit (provided all the units are set up simultaneously), we are looking at a period of 24 months during which the scrap trade will be disrupted badly, primarily because the Chinese companies collecting and trading scrap would rather receive cash for their scrap by trading it rather than piling up their inventories.

Moreover, steel demand in China already may have touched its peak in 2014. Despite some factors working to increase demand, including urbanization and the development of western China, China’s steel demand will continue to fall modestly in the medium to long term. This will occur in part because of slower economic growth, particularly the stagnant growth of steel-consuming industries, including construction and manufacturing.

At the same time, infrastructure in China is entering a replacement phase, with huge quantities of obsolete scrap getting generated each year. As per the McKinsey report, China’s scrap supply is likely to grow at the rate of 4 percent to 5 percent per year, reaching a level of 340 million metric tons by 2030—an increase from 160 million metric tons in 2015.

The question remains as to where this extra scrap generated per year will be consumed. Will China actually set up EAF capacities to consume the extra scrap? This is highly unlikely. EAFs require a good amount of electrical power to operate, and the present power situation of China does not always permit the same.

Can China consume the increased quantities of scrap in steelmaking through the BOF route? A small quantity, yes, but not the whole. The scrap intensity in China’s BOF sector in most of its better-developed steelmaking facilities is as high as 180 to 200 kilograms (400 to 440 pounds) per ton, so only a small amount of additional scrap can be used in that way.

The decline in Chinese steel demand coupled with increasing protective measures adopted by countries where China has been dumping finished and semifinished steel will force China to open trade in steel scrap instead of converting the same into finished steel and trying to sell it.

If China does cut down on its steel output, this means its home and prompt scrap production will come down at the same time. However, this will be offset by the higher amount of obsolete scrap generation. As indicated earlier, the overall scrap generation will grow to 340 million metric tons in 2030. That’s a huge amount of scrap to be consumed by the Chinese iron and steel industry on its own.

How and when the global scrap disruptions caused by Chinese exports will be brought under control will depend on China’s willingness and ability to shift to the EAF method of steelmaking in a big way. Though Chinese government has time and again stated its intention to reduce BOF capacities, how much that will see the light of day is anybody’s guess.

China cannot just wish away its BOF capacities and switch over to EAF, as this may warrant mass shifts of labor from BOF facilities to other units, which is more easily said than done. Second, if this move is implemented, it also will put a strain on existing power capacities. Many renewable power resources, which are developing at a very fast pace in China (particularly solar power generation capacity), likely will be diverted toward residential and other uses. However, the power generated through thermal sources very well can be diverted for EAF method steel mills. How soon this can happen is the big question to be answered.

Third, the BOF steelmakers may look for newer technologies to increase their scrap intensities. How soon these technologies can be developed and implemented, again, begs an answer.

Until answers are found, we could be in for a period where ferrous scrap prices will be southward bound, China will become a happy hunting ground for scrap traders and many scrap yard owners will face a tough time operating at the likely price levels. This disruption will last long enough to alter the trade dynamics for a prolonged period that will establish Chinese scrap prices as the “new normal.”